The Wealth of Nations Summary

Summary

The classic statement of economic liberalism, the policy of laissez-faire, was written during a ten-year period by Adam Smith, a Scottish professor of moral philosophy. The book’s ideas were useful in encouraging the rise of new business enterprise in Europe, but the ideas could not have taken hold so readily had it not been for the scope of Smith’s work and the effectiveness of his style.

As a philosopher, Smith was interested in finding intellectual justification for certain economic principles that he came to believe, but as an economist and writer, he was interested in making his ideas prevail in the world of business. He was reacting against oppressive systems of economic control that were restricting the growth of business, but although he concerned himself with general principles and their practical application, he was aware of the value of the individual, whether employer or laborer. There is no reason to believe Smith would have sanctioned monopolistic excesses of business or any unprincipled use of the free enterprise philosophy. To cite him in reverential tones is not to gain his sanction.

Smith begins his work with the assumption that whatever a nation consumes either is the product of the annual labor of that nation or is purchased with the products of labor. The wealth of the nation depends upon the proportion of the produce that goes to the consumers, and that proportion depends partly upon the proportion of those who are employed to those who are not, but even more on the skill of the workers and the efficiency of the means of distribution.

Book 1 of The Wealth of Nations considers the question of how the skill of the laborers can best be increased. Book 2 is a study of capital stock, since it is argued that the proportion of workers to nonlaborers is a function of the amount of capital stock available. In book 3 Smith explains how Europe came to emphasize the industry of the towns at the expense of agriculture. Various economic theories are presented in book 4, some stressing the importance of industry in the town, others the importance of agriculture. Book 5 considers the revenue of the sovereign, or commonwealth, with particular attention paid to the sources of that revenue and the consequences of governmental debt.

In Smith’s view, the productive power of labor is increased most readily by the division of labor: If each worker is given a specific job, the worker becomes more skillful, time is saved, and machinery will be invented that further speeds the rate of production. Smith believes that, as a result of the increase in production that followed the division of labor, a well-governed community would enjoy a “universal opulence which extends itself to the lowest ranks of people.”

Smith regards the division of labor as a necessary consequence of the human propensity to trade or to exchange one thing for another. He believes that the propensity to trade is a consequence of a more fundamental human trait: self-love. Thus, for Smith, the basic motivating force of any economic system is the self-interest of each person involved in the system.

Money originated as a means of facilitating exchange when the products of those who wish to barter are not desired by those with whom they choose to trade. To use Smith’s example, a butcher who has all the bread and beer he or she needs will not accept more bread or beer in exchange for meat. If the person with bread or beer can exchange it elsewhere for “money”—whether it be shells, tobacco, salt, cattle, or, the most favored medium of exchange, metal—the money can be used to buy meat from the butcher.

Among the most important ideas in The Wealth of Nations is Smith’s claim that labor is the real measure of the exchangeable value of commodities....